The company in question offers cloud computing services including ". . . computing power, storage, and other information technology infrastructure services. The company has large offices and data centers outside of Texas and small affiliate data centers in many states, including Texas.

The following is a summary of the Texas Tax Administration's response to the company's queries. It includes the following:

Customers can ". . . store, retrieve, and maintain content, data, applications and software . . ." on the company servers. Customers using this service retain ownership of their content and can freely access it via ". . . various internet programming languages, which are all freely available via the internet and not provided by the [c]ompany."

The company charges customers a single fee for storage services based on how much storage capacity they use in a given month. The company also charges customers for the volume of data they request to be transferred between data centers or back into their personal servers.

Taxability

According to the Texas Tax Administration, this service is subject to Texas sales and use tax as a data processing service, per Texas Tax Code 151.0035. The definition of data processing in the Code includes ". . . computerized data and information storage." However, Tax Code 151.351 " . . . exempts the first twenty percent of a charge for data processing services."Cloud Applications and Virtual Computing Taxability

Service

Customers can run applications, monitor computers and computer usage, send electronic communications and host web domains — ". . . essentially anything a server can do." Customers must use software to use this cloud computing service, whether own software or the company's operating system. The company does not ". . . separately license, sell or distribute any software with its cloud computing service."

The company charges customers for this service based on the resources they consume. "Operating software, application tools, data or other content are provided solely for the convenience of the customer; these costs are built into the per-hour charges."

Taxability

This service is subject to Texas sales and use tax as a data processing service, per Texas Tax Code 151.0035. The definition of data processing in the Code includes". . . computerized data and information storage as well as use of computer time for data processing." However, Tax Code 151.351 " . . . exempts the first twenty percent of a charge for data processing services."Incidental Usage Fees Taxability

Fees

The company may charge a customer separate usage fees associated with cloud computing services. These fees are ". . . charged when a customer's files or other data are moved within the data center network utilized by [the] company that is providing . . ." the service. They are also charged when data the customer retrieves data from the network.

Yes. Based on the facts provided, the data transfer fees are always provided in connection with a data processing service and become part of Company’s sales price to store or manipulate data. Tax Code Section 151.351 exempts the first twenty percent of a charge for data processing services.

Content Delivery Network Taxability

Service

[This service] intelligently determines where best to position data in the network utilized by [the] company and how best to route end user requests to access that data. Customers needing to deliver digital content (e.g. streaming audio/video) to end users utilize Service C to help them get their data to end users in the most efficient way possible, creating the lowest latency possible.

The company charges customers for this service based on the number of requests the service routes and the amount of " . . . data transferred out of the server sites that the requests were routed to."

Taxability

This service is subject to Texas sales and use tax as a data processing service since it falls within the Texas definition of data data processing, which includes ". . . data storage, manipulation, and data retrieval. Tax Code Section 151.351 exempts the first twenty percent of a charge for data processing services."Bulk E-mail Service Taxability

Service

This service provides bulk and transactional email services for businesses and developers. Among other things, it provides ". . . content filtering as well as notifications of bounce backs, failed deliveries, and spam."

Customers are charged on the number of sent e-mail messages.

Taxability

This service is not taxable as a data processing service. However, it is taxable as a telecommunications service, since it falls within the definition of telecommunications in Texas tax code Section 151.0103(a).

See the letter ruling for a discussion of sourcing rules for telecommunications taxation.Web Data Access Taxability

Service

This service provides access to web data, such as ". . . lists of web sites ordered by traffic rank . . information about web pages, such as popularity and linked site information...."

Taxability

This service is taxed as an information service as defined by Tax Code Section 151.0038. "Tax Code Section 151.351 exempts the first twenty percent of a charge for data processing services."Sourcing Rules

The local taxes due on sales of data processing and information services sold by [the] company are sourced to the local taxing jurisdictions in effect at the customer's Texas location.

Because [the] company does not operate a 'place of business' in Texas . . . and all orders are received by [the] company at an out of state location, local sales taxes are not applicable. Instead [the] company is responsible for collecting use taxes for the local taxing jurisdictions in effect at the point of delivery. See Tax Code Sections 321.205 and 323.205.